UPDATE 1-Brazil extends tax aid to sugar and ethanol sectors

Redacción de Reuters

3 MIN. DE LECTURA

(Recasts with official confirmation and program details)

By Alonso Soto

BRASILIA, Sept 10 (Reuters) - Brazil will include the struggling sugar and ethanol industries in a tax refund program to help them offset higher operational costs and the impact of a weaker local currency, Finance Minister Guido Mantega said on Wednesday.

The government will extend the benefits, part of a program known as Reintegra, to the sectors immediately via a presidential decree, giving producers a tax refund equivalent to 0.3 percent of the value of their exports, Mantega said. Next year that refund will climb to 3 percent of exports.

Producers can use the refund either as a credit against their income tax or as a cash payment.

A government official had earlier told Reuters that the measures could cost Brazil about 900 million reais ($392.76 million) in tax revenue next year.

Facing a tough re-election race, President Dilma Rousseff has tried to send market-friendly signals in hopes of recovering the trust of both voters and investors after the economy sank into a recession this year.

But extending the Reintegra program to mills should put extra financial pressure on the government, which is struggling to meet a key fiscal savings target this year.

The decision is the latest in a string of measures that the administration has implemented with limited success to shore up the ailing sectors. Sugar and ethanol mills have been hit especially hard by Rousseff’s efforts to keep domestic gasoline prices artificially low to avert a surge in inflation.

Nearly 50 of Brazil’s cane mills, which once numbered about 400, have closed since the 2008 global financial crisis, and another 60 or so have sought bankruptcy protection from creditors.

Opposition candidates Marina Silva and Aecio Neves have blamed Rousseff’s price-control policies for making ethanol less competitive and hurting the finances of state-run oil company Petrobras.

Silva, whom recent polls show as tied with Rousseff in a likely runoff vote in October, has vowed to raise gasoline prices if she is elected. This would help ethanol producers that compete with gasoline at the pump.